As , annuities and GICs should not the identical thing. An annuity provides guaranteed income for all times or for a set time frame and might be purchased from insurance firms, agents and brokers. And a GIC is primarily a savings vehicle that might be purchased from banks, trust firms, credit unions and investment firms.
In most cases, buying an annuity means exchanging your capital – a lump sum – for a lifetime payment just like an annuity. It’s a set, guaranteed income for all times, with no worries about rates of interest, stock market crashes, running out of cash, etc.
Taking out a pension, however, means a long-term commitment for an unknown future. In addition, you not have access to your original capital.
Let’s consider the next example: If you ought to buy a brand new automobile, you can not go to the insurance company and ask for just a little extra cash. It isn’t any longer your money.
I assume you’re considering GICs instead because you’re aware of the longer-term risks related to an annuity and will probably want to maintain control and suppleness over your money.
A GIC can offer you guaranteed income over the lifetime of the investment and control over your capital; nonetheless, there is no such thing as a guarantee of future rates of interest or lifetime income. It may also be difficult to generate monthly income from a GIC portfolio. This will lead you to create a GIC ladder with different maturity dates in order that money is offered when needed. The tiered approach can have a complete return that’s lower than the five-year return you utilize to match to an annuity.
Think about the way you – and the world – might change over the subsequent 25 years. Consider rates of interest, inflation, your lifestyle and spending habits, etc. Inflation might be the most important risk you face when buying an annuity.
If you purchase a $100,000 annuity, what other financial resources do you will have available now? What will you will have in the longer term? How will you have the option to deal with changes in your life? It’s necessary that the answers to those questions.
